Middle East tensions ease, send oil down for third straight session

SAN FRANCISCO (MarketWatch) — Oil futures fell for a third consecutive session to close at their lowest level in almost four weeks Tuesday on further signs of easing tensions in the Middle East.

Oil traders also looked ahead to this week’s data on U.S. petroleum supplies, which will be released later Tuesday and early Wednesday, as well as the Federal Reserve’s decision on monetary policy due Wednesday afternoon.

Crude oil for October delivery
US:CLV3
dropped $1.17, or 1.1%, to settle at $105.42 a barrel on the New York Mercantile Exchange.

Prices, which fell 1.5% on Monday after losing 0.4% on Friday, logged their lowest close since late August 22.

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Oil moves lower as Middle East tensions ease, with weekly U.S. inventory data now in focus.

Declines this week follow news over the weekend that the U.S. and Russia reached a deal to get Syria to surrender its chemical weapons to avoid a U.S. military strike.

“Crude-oil prices continue to fall, as the two-pronged issue of real and imagined supply threats recede,” analysts at the Kilduff Report said Tuesday. “The imagined is Syria, and that situation is in full diplomatic attenuation for now.”

The United Nations did declare “with finality that sarin gas was used, but the U.S. and Russia are still battling over who did it,” they said. “The main point is that now a long-drawn-out march to a showdown over surrendering the chemical weapons will play out.”

On ICE Futures, November Brent crude
UK:LCOX3
fell $1.88, or 1.7%, to $108.19 after it lost 1.5% Monday.

“Brent is in a good spot to remain under pressure now,” said Keith McCullough, chief executive officer at Hedgeye Risk Management, in an emailed note. “Don’t forget that only two weeks ago, we saw the highest net long (futures/options contracts) position ever in crude.” A long position is essentially a bet that prices will rise.

Citi Futures analyst Timothy Evans also cited news that Iran had signaled it wants to return to the negotiating table over its nuclear program as part of the reason for the decline in oil prices.

In terms of Iran, “chances for a breakthrough in relations seem remote, but diplomacy does seem to be in the air,” he wrote in a daily report.

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Investors awaited the latest weekly numbers on U.S. crude supplies, due from the American Petroleum Institute on Tuesday at 4:30 p.m. Eastern time.

A Platts survey of analysts showed average expectations for a 1.5-million-barrel fall in crude-oil stocks for the week ended Sept. 13, with oil imports also declining.

The survey also showed that analysts expect gasoline stockpiles to be unchanged for the week and distillate inventories, which include heating oil, to climb by 1 million barrels.

On Nymex Tuesday, October gasoline
US:RBV3
fell almost 6 cents, or 2%, to $2.66 a gallon, while October heating oil
US:HOV3
shed nearly 7 cents, or 2.1%, to $3 a gallon after dipping below the $3 mark during the session.

Following the API numbers, the more closely watched inventory figures from the U.S. Energy Information Administration were slated for release Wednesday at 10:30 a.m. Eastern time.

Also on the docket is the U.S. Federal Reserve’s policy decision on Wednesday afternoon. Most market participants expect the central bank to cut its $85 billion in monthly bond purchases by $10 billion to $15 billion. The monetary stimulus has been seen as a positive influence on energy demand.

“Regardless of the news flow from the Fed, I think the crude markets are likely to focus on bearish takeaways,” said Michael Peterson, managing director of energy research at investment bank MLV & Co. “Specifically, in a rising rate scenario, the bears will point to the negative correlation with crude prices while in a flat-rate scenario, the bears will highlight the lower demand implications of less-than-robust economic conditions.”

Economic reports Tuesday didn’t appear to have much of an impact on oil prices. The U.S. consumer-price index rose by a seasonally adjusted 0.1% last month, matching the forecasts of MarketWatch-polled economists, while confidence among home builders in September remained at the highest level in almost eight years.

Rounding out action on Nymex, October natural gas
US:NGV13
was up less than a cent, or 0.2%, at $3.745 per million British thermal units, following a 1.7% rise the previous day.

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